Can the cost of caring for an animal be tax-deductible?

We had an interesting question on the FreeAgent community forum recently: where should the cost of a guard dog be posted in a business’s accounts?

It caused quite a stir among our team of support accountants, who ended up answering the question with a few inspired canine-related puns. And once I’d finished laughing at how it had given them all “serious paws for thought”, it got me thinking… When, and how, is the cost of buying and caring for an animal tax-deductible in a business?

Well, it all depends on what the animal actually does for that business.

Farm animals

Farm animals, such as cattle, sheep or laying hens, would be treated as either stock of the business, or, if the animals form a production herd, as a capital asset.

A production herd is one that is kept for what the animals yield while they are still alive, such as wool, eggs, milk, honey, or live young - and each production herd is made up of animals of the same species used for the same purpose. So for example, a flock of sheep kept for wool is the same herd whether it’s a mixture of breeds or not, but a flock of one breed kept for wool and another breed for cheese would be two separate herds.

(HMRC calls them herds whatever the actual collective noun for the animals is – for example, a hive of bees kept for its honey is still referred to as a production herd.)

So farm animals are definitely tax-deductible in one of two ways, either as stock or as assets.

Working animals

There may also be animals on a farm that are kept to do a job of work but which are not part of what the farm produces, such as a sheepdog, or a horse used for carting or ploughing. I’ve visited a hill farm where ponies were used to pull carts, as the pastures were too steep for tractors.

These working animals are treated in the business books as capital assets that qualify for capital allowances, and feeding and caring for them would be tax-deductible expenses. So you could put food for these animals, veterinary fees and so forth into your business’s profit and loss account as business costs, and save tax.

Other working dogs, such as a gamekeeper’s spaniel, police dog, or army bomb disposal dog, would be treated the same way as a farm working dog.

There is very little guidance from HMRC about how to treat different working animals for tax purposes. My opinion would be that you could argue that, for example, a cat kept to control the number of mice in a grain store would also be a working animal and would be treated for tax like a working dog.

HMRC does say that this treatment would also apply to animals kept for show, racing or other competition purposes – such as a flock of racing pigeons.

Guard dogs

HMRC have been known to claim that guard dogs, especially those who guard a business run from home, are actually pet animals and therefore the cost of buying and feeding the dog is either not allowable for tax or only partly allowable.

This doesn’t always work though:

We had a visiting inspector (many years ago) suggest that the two Alsatians in the pub were "primarily pets" and not allowable as guard dogs. Having known these 2 dogs since they were pups and knowing my uncle (an RAF dog handler instructor) had trained them, I simply opened the door and told them to "watch him". I suspect he needed a change of underwear after that encounter :) Needless to say the 100% claim as guard dogs was never questioned again.

[Source: AccountingWeb]

My own opinion would be that a guard dog that isn’t also a pet animal should be treated just like any other working dog. You could claim capital allowances on the cost of buying the dog, and “maintenance” costs for the dog - such as feeding and vets’ bills - are tax-deductible expenses.

If you have a pet dog that also carries out some guard duties, for example guarding a home office at night, then my opinion would be that you could claim a proportion of the dog’s food, vet fees, insurance, etc. as business costs.

Guide dogs

There is no guidance from HMRC about whether the cost of looking after a guide dog or hearing dog might ever be a business cost.

My opinion would be that, in general, you almost certainly couldn’t claim any costs for these animals, as their main function is to help you with your daily life rather than in your business.

If you would be unable to run your business without the help of your dog, for example you wouldn’t be able to travel to visit your customers without your guide dog, then my suggestion would be to claim part of the cost of looking after the dog as a business cost – and be prepared to argue this with HMRC if challenged.

A business that cares for animals

If your business is the care of animals, for example a boarding kennels and cattery, then the cost of feeding the animals in your care, their veterinary fees, and all the costs of looking after them, would be allowable expenses for tax.

What about Uggie?

If you’ve seen The Artist you’ll know who Uggie is – and the cost to the film company of looking after him would definitely be allowable for tax!